Singapore giant oil trader Hin Leong failed to declare $1.14 billion losses

A view of Hin Leong's Pu Tuo San VLCC supertanker in the waters off Jurong Island in Singapore, on July 11, 2019. PHOTO: REUTERS

SINGAPORE (REUTERS, BLOOMBERG) - The legendary founder of top Singapore oil trader Hin Leong Trading (HLT) directed the firm not to disclose hundreds of millions of dollars in losses over several years, he said in a court filing reviewed by Reuters.

The affidavit signed by Lim Oon Kuin, a Chinese immigrant in his 70s widely known as O. K. Lim, is part of a Friday (April 17) filing to the Singapore High Court by HLT and its shipping arm Ocean Tankers (Pte) Ltd, seeking a six-month moratorium on debts of US$3.85 billion (S$5.47 billion) to 23 banks.

The filing cites a collapse in oil prices and the coronavirus pandemic, which has hammered oil demand and pushed up costs for HLT, one of Asia's largest oil traders.

Despite reporting net profit of US$78.2 million for the business year ended in October, "HLT has not been making profits in the last few years," Mr Lim said in the filing, which has not been made public.

The company "suffered about US$800 million (S$1.14 billion) in futures losses over the years but these were not reflected in the financial statements," he said. "In this regard, I had given instructions to the finance department to prepare the accounts without showing the losses and told them that I would be responsible if anything went wrong."

Reuters was the first to disclose the existence of Mr Lim's affidavit spelling out the losses and specific including his acknowledgement of personal responsibility for not reporting the losses. Bloomberg cited the US$800 million in losses in a report earlier on Sunday (April 19).

Mr Lim, reached by phone, declined comment to Reuters. The company is being advised by Rajah & Tann.

Mr Lim's only son Evan Lim Chee Meng, a director at HLT and Ocean Tankers, said the company also sold some of the million of barrels of refined products it had used as collateral to secure loans from its banks, sources told Bloomberg, citing an April 17 email sent by Ocean Tankers notifying recipient parties of proposed moratorium proceedings.

As a result, the company faces a significant shortfall between the oil stocks it held and the inventories pledged to its banks. That potentially means huge losses for the banks which provided HLT with billions in loans as the collateral they thought they have as a guarantee isn't there.

The son also said he was unaware of the reason for losses suffered over some years and his father had instructed Hin Leong's finance department to omit them from its financial statements, according to the people with knowledge of the email.

The 23 banks named in the filing declined or did not respond to emailed requests in the past several days for comment.

Of HLT's lenders, HSBC Holdings has the biggest exposure at US$600 million, followed by ABN Amro at US$300 million. Three Singapore banks - DBS Group, OCBC Bank and United Overseas Bank - have a combined exposure of at least US$600 million. DBS has the highest exposure at around US$290 million, OCBC Bank is owed about US$220 million, and UOB lent US$100 million, The Business Times reported earlier.

The Monetary Authority of Singapore has been in touch with the banks on their exposures, according to a report by the Financial Times.

The affidavit, which said Lim was resigning immediately as director of the family-held company he founded half a century ago from a single delivery truck, did not specify over how many years the losses were incurred or why he was blaming HLT's difficulties on problems that arose largely in the past few months.

Hin Leong was established in 1963 and has grown into one of Asia's largest suppliers of ship fuel, or bunkers. Ocean Tankers owns a fleet of more than 100 oil tankers of various sizes, makiing it one of the world's largest.

Its sprawling empire also comprises Ocean Bunkering Services - one of Singapore's top three marine fuel suppliers - and Universal Terminal, one of Asia's biggest oil storage terminals, located on Jurong Island, which it co-owns with China's state-owned oil giant PetroChina.

Under Singapore law, Friday's filing automatically protects HLT from legal action by creditors for 30 days while the court decides whether to grant the six-month debt-repayment extension.

The older Mr Lim said in the filing that HLT had held a video conference on Tuesday with creditors and advisers "to inform bank lenders of HLT's financial position," which it said included liabilities of US$4.05 billion against assets of US$714 million as of April 9.

A drop of two-thirds in the oil price in the first three months of this year, a tightening of bank credit lines and margin calls at HLT caused a "severe depletion" of the company's cash reserves,Mr Lim said in the filing.

HLT recorded payments to meet the margin calls as accounts receivable, the company sold "a substantial part of inventory" being financed by banks to raise cash and it did not sufficiently hedge its exposure to a fall in oil prices, Mr Lim said.

PetroChina International (Singapore), PetroChina's trading arm, has terminated petroleum sales contracts with HLT and demanded for an immediate payment of US$23.87 million, Lim said. PetroChina did not immediately respond to email and phone requests for comment.

HLT may file more affidavits with further information, including a list of 20 largest unsecured and unrelated creditors, Mr Lim said.

This story has been edited to reflect an update in the seventh paragraph from Reuters

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